+ All Categories
Home > Documents > Office of Surety Guarantees

Office of Surety Guarantees

Date post: 03-Jan-2017
Category:
Upload: doankhuong
View: 223 times
Download: 0 times
Share this document with a friend
76
SBA SOP 50 46 1 __________________________________________ Claims and Recovery Program Office of Surety Guarantees
Transcript
Page 1: Office of Surety Guarantees

SBA SOP 50 46 1

__________________________________________

Claims and Recovery Program Office of Surety Guarantees

Page 2: Office of Surety Guarantees

SMALL BUSINESS ADMINISTRATION

STANDARD OPERATING PROCEDURE

National

SUBJECT: S.O.P. REV

Claims and Recovery Program

SECTION

50

NO.

46

1

INTRODUCTION 1. Purpose. To establish written guidelines and procedures for surety bond guarantee claims reimbursement

and recovery activity. 2. Personnel Concerned. Office of Surety Guarantees’ claims and recovery personnel. 3. Directives Canceled. SOP 50 46. 4. Originator. Office of Surety Guarantees.

AUTHORIZED BY: EFFECTIVE DATE

1/15/99

Robert J. Moffitt

Associate Administrator

Office of Surety Guarantees

PAGE

1

SBA Form 989 (5-90) Ref: SOP 00 23

Federal Recycling Program Printed on Recycled P

This form was electronically produced by Elite Federal Forms, Inc.

Page 3: Office of Surety Guarantees

50 46 1

Table of Contents

Chapter 1 ....................................................................................................................................... 6 General Overview of Surety Bond Guarantee Program........................................................ 6

1. What is the General Scope and Purpose of this SOP ..................................................... 6 2. What is the Program's Statutory Basis? ......................................................................... 6 3. What are the Program Objectives?................................................................................. 6 4. What is the Program’s Authority?.................................................................................. 6

Chapter 2 ....................................................................................................................................... 8 Claim for Reimbursement Procedures.................................................................................... 8

1. When Does the Surety Notify the SBA of a Claim Situation?....................................... 8 2. What is a “Rumble” Situation? ...................................................................................... 8 3. What is an “Imminent Breach?”.................................................................................... 8 4. How Does CRD Handle Imminent Breach Requests? ................................................... 8 5. When Does CRD Request a Contractor’s File? ............................................................. 9 6. How Does CRD Request a Contractor’s File? ............................................................... 9 7. What Happens to the File Once it is Received?............................................................. 9 8. What Happens When CRD Cannot Locate a File? ...................................................... 10 9. How is the Claim File Organized? ............................................................................... 10 10. How Does a Surety Inform SBA of Claim and Recovery Activity?............................ 10 11. What is a Claim Status Code? ...................................................................................... 11 12. How Does CRD Analyze the Contractor File? ............................................................ 11 13. What Happens When a Bid Bond Default Occurs? ..................................................... 14 14. How Does the Surety Request Reimbursement from SBA? ........................................ 14 15. How Does CRD Process Claims for Reimbursement Requests? ................................. 15 16. How are Delays in Reimbursements to Sureties Prevented? ....................................... 17 17. How Does CRD Track Missing Payments? ................................................................. 18 18. Can CRD Release Information Contained in Case Files?............................................ 18

Chapter 3 ..................................................................................................................................... 20 Subrogation and Recovery Procedures ................................................................................. 20

1. How Does CRD Handle Subrogation Activities? ........................................................ 20 2. When are Funds Due SBA? ......................................................................................... 22 3. What are the Procedures for Placing a File in “Closing Final” Status? ....................... 24 4. What is an Indemnity Settlement? ............................................................................... 25

Effective Date: January 15, 1999 Page 2

Page 4: Office of Surety Guarantees

50 46 1

5. When are Files Reinstated? .......................................................................................... 28

Chapter 4 ..................................................................................................................................... 30 Procedures for Sureties that are Defunct, in Rehabilitation, or in Liquidation............ 30

1. What are the Definitions of Each Status? .................................................................... 30 2. What are the Claims Handling Procedures for Sureties that are Defunct, in Rehabilitation, or in Liquidation? .......................................................................................... 30 3. What are the Reinstatement Policies for Contractors?................................................. 30

Appendix 1................................................................................................................................... 32 Index of Forms and Reports ................................................................................................... 32

Appendix 2................................................................................................................................... 34 Sample of Optional Form 23, Chargeout Record................................................................. 34

Appendix 3................................................................................................................................... 36 Sample of SBA Form 912, Statement of Personal History .................................................. 36

Appendix 4................................................................................................................................... 38 Sample of SBA Form 994, Application for Surety Bond Guarantee Assistance ............... 38

Appendix 5................................................................................................................................... 40 Sample SBA Form 994B, Surety Bond Guarantee Underwriting Review ......................... 40

Appendix 6................................................................................................................................... 44 Sample SBA Form 994C, Surety Bond Guarantee Review Update.................................... 44

Appendix 7................................................................................................................................... 46 Sample of SBA Form 994F, Schedule of Uncompleted Work ............................................. 46

Appendix 8................................................................................................................................... 48 Sample SBA Form 990, Surety Bond Guarantee Agreement.............................................. 48

Appendix 9................................................................................................................................... 50 Sample of SBA Form 991, Surety Bond Guarantee Agreement Addendum ..................... 50

Appendix 10................................................................................................................................. 52 Sample of SBA Form 1624, Certification, Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transaction............................................... 52

Appendix 11................................................................................................................................. 53 Sample of SBA form 1261, Statements Required by Law and Executive Orders............. 54

Appendix 12................................................................................................................................. 58 Sample SBA Form 994H, Default Report, Claims for Reimbursement............................. 58

Appendix 13................................................................................................................................. 60 Sample of the Closing Summary Review Sheet .................................................................... 60

Effective Date: January 15, 1999 Page 3

Page 5: Office of Surety Guarantees

50 46 1

Appendix 14................................................................................................................................. 62 Sample of a Reinstatement Letter.......................................................................................... 62

Effective Date: January 15, 1999 Page 4

Page 6: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 5

Page 7: Office of Surety Guarantees

50 46 1

Chapter 1

General Overview of Surety Bond Guarantee Program 1. What is the General Scope and Purpose of this SOP

This SOP describes policy and procedures for handling defaults, claims, and recoveries resulting from surety bond guarantees issued by the Small Business Administration (SBA).

2. What is the Program's Statutory Basis?

The Small Business Investment Act of 1958, as amended, empowers SBA to guarantee the reimbursement of a surety participating in the Surety Bond Guarantee (SBG) Program for up to a specified percentage of their losses incurred and paid as a result of the contractor’s breach of the terms of a guaranteed bid bond, payment bond, performance bond(s). Contracts eligible for SBA’s guarantee cannot initially exceed $1,250,000 in face value. Chapter 13, Part115 of the Code of Federal Regulations (13 CFR 115) provides regulatory guidelines and provisions for the SBG Program.

3. What are the Program Objectives?

The primary objective is to enable small contractors to obtain bonds for contracts requiring them, which they could not obtain from a surety without an SBA guarantee. A secondary objective is to assist small and emerging contractors to become more bondable in their own right.

4. What is the Program’s Authority?

a. Headquarters Office

The Office of Surety Guarantees (OSG) has authority for overview and control of SBG-related activities. Its primary claims function is to minimize SBA’s losses and maximize recoveries by:

(1) Reviewing and approving, or denying claims for reimbursement under the

guarantee; (2) Establishing SBA loss reserves;

Effective Date: January 15, 1999 Page 6

Page 8: Office of Surety Guarantees

50 46 1

(3) cancellation or denial of SBA liability is warranted under the guarantee;

(4) -site reviews of underwriting, claims, and subrogation

practices; and

(5) edures for ensuring that SBA receives its share of any surety recovery.

b. Area Offices

Determining whether

Conducting on

Establishing proc

ts that

or contractors with SBA loans have secured bonding with SBA’s guarantee.

. Surety Companies

The various area SBG offices support OSG staff in efforts to minimize SBA’s losses by informing SBA Headquarters of potential problems with contrachave an SBA guaranteed bond. The area offices are also responsible for maintaining contact with district offices where 8(a) contractors

c

bond in which the surety seeks reimbursement of its losses and/or expenses.

with the participating surety company,

and not with the individual contractor.

Participating sureties are required to take all reasonable actions necessary to minimize loss and pursue recovery on any defaulted

SBA’s direct contractual relationship is

Effective Date: January 15, 1999 Page 7

Page 9: Office of Surety Guarantees

50 46 1

Chapter 2

Claim for Reimbursement Procedures

1. When Does the Surety Notify the SBA of a Claim Situation?

A surety must notify OSG’s Claims and Recovery Division (CRD) and the appropriate area office in writing either at the time the surety applies for a guarantee on behalf of an affected principal, or within 30 days of the date the surety acquires knowledge, or should have acquired knowledge, whichever comes first, of any of the following events:

a. Legal action is initiated under of the bond; b. The Obligee declares the Principal to be in default of the Contract;

c. The surety establishes a claim reserve for the bond; or

d. The surety receives any adverse information concerning the Principal�s financial

condition or possible inability to complete the project or to pay laborers, subcontractor, or suppliers.

2. What is a “Rumble” Situation? A surety must advise SBA that a claim has been made against the bond, but may indicate

that the principal either intends to satisfy the claim or that the claim is being disputed. Generally, the surety sets a small reserve in these cases. Based on the reserve amount and if SBA anticipates that there will be no loss (i.e., collateral is posted, or claim paid), CRD will not request the case file from the area office at that time. This type of possible claim situation is referred to as a “rumble” CRD should fax a copy of the rumble notice to the respective area office immediately upon receipt. Respective area offices will in turn notify responsible SBA district offices on “rumble” cases pertaining to 8(a) contractors and contractors that have SBA loans.

3. What is an “Imminent Breach?”

Imminent Breach is a threat to the successful completion of a bonded contract that, unless remedied by the surety, makes a default under the bond inevitable. In order for the SBA to reimburse a surety for payments made under Imminent Breach, the surety must submit a written request for SBA’s approval prior to the surety’s payment(s) to the contractor. The request includes the circumstances of the Imminent Breach, the reasons why the surety believes the contractor can complete the contract and the amount of funds needed to cure the breach.

4. How Does CRD Handle Imminent Breach Requests?

Effective Date: January 15, 1999 Page 8

Page 10: Office of Surety Guarantees

50 46 1

a. riate

nt y; amount of claims

received; and the nature and extent of work to be completed.

b.

e

See Claims & Recovery System User’s Manual for all data input instructions.)

5. When Does CRD Request a Contractor’s File?

a.

les for participating contractors are located in the appropriate area office in the field.

b. ne

im and surety bond guarantee number to make it easier to identify a specific project.

6. How Does CRD Request a Contractor’s File?

y delays in receiving requested files should

be reported to the supervisor immediately.

. What Happens to the File Once it is Received?

move e is removed from the file room and place it in the

Once SBA receives an Imminent Breach request, CRD should notify the approparea office to request the file temporarily for review. Please remember that the contractor is not in default. CRD will review the case file with emphasis on currework in progress; the contractor’s ability to repay the suret

CRD will provide a brief summary of the case with recommendations on whether SBA should reimburse the surety for imminent breach payments to the Associate Administrator (AA)/OSG to approve or decline. If SBA agrees to reimburse the surety for imminent breach, CRD must enter the imminent breach information intothe computer. This will set-up a computerized file so that SBA can reimburse thsurety and monitor repayment activity. (

CRD will request the contractor’s file from the area office when the surety has advised SBA that a claim reserve has been established for at least $1,000.00 or more. All underwriting fi

Since the same contractor could have multiple guarantees, it is important to determiif the file is already in CRD. Check the computerized file tracking system to see if the file was previously forwarded to the CRD. Most default notifications refer to a specific bond, cla

CRD requests contractor’s file by contacting the appropriate area office via e-mail or faxed memo signed by an SBG specialist or supervisor. The area offices should respondto a request for files within 3 workdays. An

7

Once OSG receives the file(s) from the respective area office, the Office Automation Assistant (OAA) will enter the principal’s name, SBG number, and the date received intothe computerized file tracking system. The OAA will prepare a file label containing the principal’s name and the first nine digits of the old SBG number or the contractor’s Employer Identification Number (EIN) or the contractor’s Social Security Number (SSN) whichever is applicable as part of the new SBG number. An Optional Form 23, “Chargeout Record,” (Appendix 2) is also prepared, with the same information. Rethe Optional 23 each time the fil

Effective Date: January 15, 1999 Page 9

Page 11: Office of Surety Guarantees

50 46 1

chargeout box in the file room. 8. Wh

” ests

printouts of all underwriting and claims activity to-date. When the original file is he materials from the dummy file to the original file.

9. Ho

s status in chronological order within the case file. The following documents are placed together in a separate part of the file for claim and recovery related activity:

dence;

Notification(s);

rms;

10. Ho

a.

y’s indemnity efforts, and the surety’s claim reserve. This information is also used to adjust SBA’s share of the surety’s

b.

otice, and then every 6 months

at Happens When CRD Cannot Locate a File?

If an original file cannot be located within 2 weeks, the OAA may prepare a “dummyfile. A “dummy” file is a temporary file that is used to process reimbursement requuntil the original file is found. The dummy file contains a complete set of computer

located, CRD will transfer all of t

w is the Claim File Organized? CRD maintains information on bond guarantees that are in a “claims” status separate from the bond guarantees that are not in claim

a. Current correspon

b. Status Report(s);

c. Initial Default

d. SBA Fo

e. Bonds;

f. Contracts;

g. Copy of Bonding Line(s); and

h. Other related underwriting and claim information.

w Does a Surety Inform SBA of Claim and Recovery Activity?

The CRD uses status reports from participating surety companies to monitor a surety’s claims and recovery activity on defaulted bond guarantees. Status reports must include the project’s completion status, remaining contract balances, performance and payment bond activities, suret

reserves and to update the computer database.

At the time of the initial status report, much of the information may not be available to the surety; therefore, SBA requires the surety to submit semiannual status reports on each claim beginning 6 months after the initial n

Effective Date: January 15, 1999 Page 10

Page 12: Office of Surety Guarantees

50 46 1

thereafter. The surety must notify SBA immediately of any substantial changes in the status of the claim or the amount of loss reserves.

11. Wh

Based on the status report(s) received from the surety company, CRD places the file into

pos

. Claim Status "1"

at is a Claim Status Code?

an appropriate default status in the computer database. The following is a list of the sible categories and descriptions.

a : This is an "Active" status used to establish the case in claims when

b. Claim Status "2"

the surety indicates that there is contingent liability and that claims for reimbursementwill be forthcoming.

: This is a "Closed-No Loss" status used after SBA has received full

c. Claim Status "3"

recovery from the surety for its claims for reimbursement paid by SBA; or when no payment was made by the surety or SBA after contractor was placed in a claim status.

: This is a "Closed-to-Subrogation" status used when the project has

d. Claim Status "4"

been completed and all outstanding claims have been paid by the surety and recovery is being pursued from the indemnitor(s), and/or the obligee (contract retainage).

: This is a "Closed-Final" status that is used only after the surety has ase

e.

exhausted all reasonable recovery efforts and has receives SBA's approval to cefurther pursuit of recovery.

Claim Status "5": This is a "Settlement" status that is used when the surety has executed an agreement with the principal/indemnitor for less than the actual losses

cipal/indemnitor. The surety must obtain SBA’s concurrence before entering into any settlement agreement.

12. How D

a. nancial, business, underwriting, and default/claim information for bond guarantees in default to verify compliance with regulatory provisions. The

b. ncial, business, and underwriting information is the first step in

e s of

the

and/or expenses paid on behalf of the prin

oes CRD Analyze the Contractor File?

CRD examines the fi

file analysis checklist is a helpful guide to organize and review the file materials thatare often extensive.

A review of the finaanalyzing the claims file. Examine the following underwriting forms to determinthat the guarantee was executed in accordance with the regulations and provision

SBG program.

(1) SBA Form 912, "Statement of Personal History," (Appendix 3), Review focharacter and reputation eligibility requirements. See 13 CFR 115.13 to determine who is required to submit this form.

r

Effective Date: January 15, 1999 Page 11

Page 13: Office of Surety Guarantees

50 46 1

(2) General Indemnity Agreement (GIA) Make certain this is signed by the

(3) ix

principal(s) and indemnitor(s), and notarized by an authorized person(s). It must be applicable to the surety that appears on the bonds and the SBA guarantee agreement.

SBA Form 994, "Application for Surety Bond Guarantee Assistance," (Append4), contains pertinent information about the company’s gross annual receipts, the project, its location, starting and completion dates, contract amount, penalty

des

(4) B/C, "Surety Bond Guarantee Underwriting Review/Review

clause, and the principal's experience with other SBA programs. It also incluinformation on the principal's minority status, which may affect the guarantee percentage.

SBA Form 994Update," (Appendix 5/Appendix 6), contains extensive information about the principal's financial status, prior work experience, and current contract. Compare this information to material found elsewhere in the file to verify its consistency and accuracy.

(5) SBA Form 994F, “Schedule of Uncompleted Work,” (Appendix 7), contains a

listing of all of the contractor’s uncompleted work (bonded and unbonded) at the time the guarantee was issued, including the subcontractor’s uncompleted wo

SBA Form 990, "Surety Bond Guarantee Agreement," (Appendix 8)

rk.

(6) , is SBA's commitment to guarantee bonds which were issued by the surety. Check both thsurety and SBA representatives' signatures to verify that these persons were

e

authorized to execute the SBA 990. There should be a power-of-attorney (POA)

hould 0.

(7)

in the file matching the signature for the surety on the SBA 990. SOP 50 45 Chapter 1, “General Overview of the Surety Bond Guarantee Program,” sbe used to verify the delegated authority of the SBA signature on the SBA 99

SBA Form 991, “Surety Bond Guarantee Agreement Addendum,” Appendix 9), is used when work under the contract has started prior to the surety receiving SBA’s guarantee to provide evidence from the principal that the surety bond requirements was contained in the original contract and to provide sufficient documentation as to why the surety bond was not previously secured.

(8)

The SBA 991 also provides certification that all subcontractors and suppliers were paid before the SBA 991 is approved. It is important that the percentage of guarantee on the SBA 990 is correct, based on the contract amount and program regulations. SBA Form 1624, “Certification, Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transaction,” (Appendix 1certification required by Executive Order 12549, Debarment and Suspension, 13 CFR Part 145. The case file must contain SBA 1624 for each project submission.

0), is the

Effective Date: January 15, 1999 Page 12

Page 14: Office of Surety Guarantees

50 46 1

( SBA Form 1261, “Statements Required by Law and Executive Orders,” 9)(Appendix 11), make sure that a copy of this form is in the contractors case file.

c. ontract, bid

ount was within statutory limits, and that the project was eligible for the SBG Program. (Refer to SOP 50 Su

d. CRD must also review the default notification, and current status reports to ascertain the

filed against the bond;

;

. CRD will request clarification from surety on any discrepancy or inconsistency in

tten cases,

abn lit conditions of the SBA 990 e re ctions by the Agency.

g. Lis elo referral:

taining SBA’s Guarantee;

statutory limit;

(10) Financial/Business Data, is reviewed to determine if principal met program eligibility requirements for the SBG Program, at the time of the guarantee.

CRD must thoroughly review the applicable bond(s), bonded csolicitation, and contract award letter to verify that the bonds were required, that the contract amount is the same on the SBA 990, that the contract am

45, “ rety Bond Guarantee Program,” for more details.)

following information:

(1) A description of the claim(s) (2) The status of the project and completion arrangements; (3) Remaining contract funds; (4) Surety's plan for settling or defending the claim(s)

(5) The anticipated loss plus reserve amounts; and (6) Other information that is pertinent to the claim.

einformation provided in the status reports and case files. Once the analysis is completed and CRD determines that payment can be made under its guarantee, the contractor is placed in default status in the SBG computer.

f. CRD will prepare written referrals to the AA/OSG, on poorly underwriorma ies, or apparent non-compliance with the terms and. Th ferral must include a recommendation for further a

ted b w are a few situations that would require a written

(1) Work began prior to ob (2) Original contract amount exceeds (3) Financial Guarantees;

(4) Surety’s failure to obtain a GIA;

Effective Date: January 15, 1999 Page 13

Page 15: Office of Surety Guarantees

50 46 1

(5) Bond(s) amount exceeds contract amount;

(6) Surety did not notify SBA timely of possible default/claims;

(7) gligence in handling losses;

; and

13. What Happens When a Bid Bond Default Occurs?

a. A bid bond default occurs when the surety will not issue the final bonds or when the contractor refuses to enter the contract after notification of proposed award. To process a claim under the bid bond, SBA must receive the following information:

(1) copy of the demand letter from the obligee;

(2) A copy of the lawsuit (if applicable);

b. r

e a SBA 990, which must be signed by the area office surety bond guarantee personnel with the appropriate

new guarantee; it is used only to document a previous commitment under a bonding line. Carefully review

r

14. Ho

A surety can request reimbursement by submitting SBA Form 994H, "Default Report, Claim for Reimbursement, a Record of Administrative Record," (Appendix 12). The surety can also use a previously approved substitute form that contains all the information identical to the SBA 994H, including the "verbatim" certification.

Surety’s ne

(8) Surety’s Material misrepresentation

(9) Any bond or contract that appears ineligible due to substantial regulatory violation.

A

(3) A copy of the bid bond; and

(4) A copy of the contract.

CRD must receive a copy of the bonding line, in addition to the bid bond, lawsuit, odemand letter from the obligee when no SBA 990 exists for a bid bond guarantee executed under a bonding line. The surety must prepar

delegated authority. This action does not constitute a

information pertaining to the bid bond default to see if the bid bond was issued aftethe contract was awarded and/or the job had started.

w Does the Surety Request Reimbursement from SBA?

Effective Date: January 15, 1999 Page 14

Page 16: Office of Surety Guarantees

50 46 1

15. How Does CRD Process Claims for Reimbursement Requests?

CRD checks the SBA 994H, for “original” signature by an authorized representative and date on the certification portion of the form. The following items are reviewed in detail. a. Initial Payment

(1) Review the SBA 994H or its substitute, to ensure that the information corresponds with information in the case file.

(2) Check the SBA 990, to determine the following.

(a) Approval signature of SBA official is within appropriate authority. (b) For all guarantees approved on or after May 8, l989, the guarantee

percentage is:

(i) 80 percent for contracts more than $100,000;

(ii) 90 percent for contracts up to and including $100,000; and

(iii) 90 percent for all contracts awarded to firms owned and controlled by socially and economically disadvantaged individuals.

(c) A deductible applies on guarantees issued prior to November 28, l988.

SBA’s guaranteed share does not start until the surety has paid the lesser of the first $500.00 or the amount of the bond premium as reduced by the guarantee percentage. The correct deductible is determined by multiplying 80 percent of the premium charged up to $500.00, whichever is less.

(d) Correct name of the surety - When there are two sureties (co-sureties)

named on the SBA 990, the lead surety is specified. All transactions with SBA will be done through the lead surety.

(3) Page two (2) of the SBA 994H provides a list of itemized disbursements

by date, draft number, payee, and amount, any recovery received and the loss summary. Documentation to support the itemizations on all attorney and/or consultant fees must accompany the SBA 994H. CRD must enter all of the SBA 994H information into the computer. Once the information is entered the computer will calculate the appropriate payment amount or amount due the SBA.

Effective Date: January 15, 1999 Page 15

Page 17: Office of Surety Guarantees

50 46 1

Example #1: Surety's Total Loss Disbursements $3369.36

(Less Recovery if applicable) -1000.00 Subtotal 2,269.36 (Less Deductible, if applicable) -500.00 Reimbursable Loss 1,769.36

Reimbursable Loss $1,769.36 SBA percent Guarantee (80 or 90 percent) x .90 SBA's Share of Loss 1,592.42

SBA's Share of Loss $1,592.42 Less Previous SBA Payments 0.00 Amount Due Surety From SBA $1,592.42

(4) CRD staff with the appropriate delegated authority must review and

approve the SBA 994H in the computer. b. Subsequent Payments

(1) The same procedures are used for the subsequent payment as were for the

initial payments. However, it is important that CRD review the itemizations more closely for any disbursement duplications from prior requests. All items that have been previously reimbursed are considered duplicates and are disallowed from the itemized total amount. Notate dis- allowances(s) on the SBA 994H and notify the surety of the disallowance(s) and advise the surety of the corrected amount to be paid.

(2) Request and review current status reports with sufficient loss reserves. If

the validity of the claim for reimbursement or justification for payment appears to be questionable, refer the file to the supervisor for appropriate action.

An example of how the computer will calculate a subsequent payment is s follows: a

Example #2: Current Losses Reported $2,151.10

ep rted Losses Previously R o 3,369.36 Total Surety Loss 5,520.46

Surety Loss $5,520.46 (Less Recovery: Current if applicable) 0.00

usly R ported (Less Recovery: Previo e ) -1,000.00 Total Surety Net Loss 4,420.46

Effective Date: January 15, 1999 Page 16

Page 18: Office of Surety Guarantees

50 46 1

p licable Subtotal $4,420.46 Less Deductible (If a p ) -500.00 Reimbursable Loss 3,920.46

90 percent) Reimbursable Loss $3,920.46 SBA% Guarantee (80 percent or x .90 SBA's Share of Loss 3,528.41

SBA's Share of Loss $3,528.41 (Less Previous SBA Payments) -1,592.42 Amount Due Surety From SBA $1,935.99

c. Trust Accounts

(1) , the surety may establish a trust account from which expenses are paid.

(2) ot

t account, the deposit(s) becomes the undisbursed trust account balance.

(3) are

surety on the trust account as the trust account balance decreases.

(4)

e

d in the undisbursed trust account balance entered on the SBA 994H.

A surety may choose to complete a defaulted project. When this occurs

Monies deposited into the trust account, but not actually disbursed, are nreimbursable by SBA. The deposit(s) is reported to OSG as part of the surety’s total loss disbursements on the SBA 994H. If no payments are made from the trus

Although no loss disbursements appear on the SBA 994H, paymentsmade to the

To determine the reimbursable amount, subtract the undisbursed trust account balance from the surety's total loss disbursements. A separate accounting of the trust account transactions must be submitted by thsurety. Any trust account disbursements unaccounted for must be include

d

. Distribution of Approved SBA 994Hs

After the SBA 994Hs have been approved for payment in the computer, CRD will file the SBA 994Hs into the contractor files under the appropriate project suffix number.

16. How are Delays in Reimbursements to Sureties Prevented?

a. SBA is required to reimburse surety companies within 90 days of receipt of their

payment request in accordance with 13 CFR 115.35. To help expedite the payment process, CRD requires the sureties to provide the following items with the initial

Effective Date: January 15, 1999 Page 17

Page 19: Office of Surety Guarantees

50 46 1

claims for reimbursement:

1) Initial Default Notification;

(2) Copy of the Contract for which the bonds were issued;

(3) py of the appropriate contact bonds (bid, payment, and/or performance);

(4) An executed copy of the SBA 990;

(5) The General Indemnity Agreement;

(6) Documentation for all fees and expenses;

(7) An original signature and date of execution;

(8) e,

to complete, appropriate reserve, and details regarding the claim situation; and

(9) A Copy of the Agent’s power of attorney.

b. an

of the claim, return the reimbursement request to the surety with an explanation.

7. How Does CRD Track Missing Payments?

ll need the SBG number, the surety name, the payment amount, and

the approval date.

8. Ca

a. that

procedures

b.

tion against both SBA and

(

An executed co

A narrative status report that includes percentage of completion, contract balanccost

However, when additional information is still needed on a claim payment, CRD cdisallow the questionable amount pending receipt of the information; unless, therequested information pertains to the entire claim. If the requested information pertains to the entire amount

1

If a surety informs SBA that they have not received their check or electronic deposit, CRD must contact SBA’s Denver Finance Center (DFC) in Denver, CO, immediately forassistance. DFC wi

1 n CRD Release Information Contained in Case Files?

Public access to information contained in SBA case files is governed by provisions established by the Freedom of Information Act and Privacy Act. It is essentialyou recognize the importance of compliance with the policies and governing public access to files, records, and documents of SBA.

Disclosure of information in an unofficial manner may compromise SBA's position, increase vulnerability of the Agency, and result in legal ac

Effective Date: January 15, 1999 Page 18

Page 20: Office of Surety Guarantees

50 46 1

the employee responsible for the release of the material.

Prepare your responses to requests c. for information from case files according to the

procedures found in SOP 40 03, “Disclosure of Information,” and 13 CFR 102,

d.

ly. le release form and notate the file charge-out card

accordingly. Under no circumstances should you release a case file from OSG without notifying the AA/OSG.

“Record Disclosure and Privacy.”

If SBA receives a subpoena and/or court order from a Court for a file in claims, youshould notify the AA/OSG and the Office of General Counsel (OGC) immediateMake sure that you complete a fi

Effective Date: January 15, 1999 Page 19

Page 21: Office of Surety Guarantees

50 46 1

Chapter 3

Subrogation and Recovery Procedures 1. How Does CRD Handle Subrogation Activities?

a. Conditions Necessary to Transfer a Claim File on a Bond Guarantee to Subrogation/Recovery Status

CRD will place the file into a “Closed-to-Subrogation” status (Claim Status “3”) in the computer when the surety advises SBA that the project has been completed, all claims payments have been made, no further contingent liability remains, and recovery is being actively pursued from the principal, indemnitors, and obligee. CRD then monitors surety’s recovery efforts through regular status reports.

b. Status Reports

(1) CRD uses status reports from sureties to monitor recovery and to check the expenses anticipated relative to recovery efforts. These reports are received semi-annually; however, if significant changes occur in recovery activity, the surety must advise SBA immediately. CRD can also request additional information at any time, if necessary. CRD compares information contained in the current status report to that in previous status reports, as well as to other information in the file to check for consistency, accuracy, and to verify that the surety is taking all steps necessary to minimize the loss and is pursuing all possible sources of recovery.

(2) As part of a status update, a surety may advise SBA that a payment plan has

been established for a defaulted contractor. CRD must request a copy of the repayment plan to monitor receipt of SBA’s share for monies received by the surety.

(3) CRD also monitors actual and anticipated legal fees and costs associated with

the surety's subrogation efforts. Refer any abnormalities or apparent non-compliance with the terms and conditions of the SBA 990 in writing to the AA/OSG, through the appropriate supervisor, with a recommendation for appropriate action

c. Sources of Recovery and Related Documentation

The following is a list of recovery documentation that is required for SBA’s review:

(1) GIA: This is an agreement signed by an individual or entity holding the

Effective Date: January 15, 1999 Page 20

Page 22: Office of Surety Guarantees

50 46 1

surety harmless from any loss or exposure incurred on a bond that it issues. The signatures on this form determine who the surety holds liable and what assets may be pursued by the surety.

(2) Investigative Reports: Two of the most common investigative reports

the Equifax and the Dun and Bradstreet. Both are used to locate the are

indemnitors and ascertain what assets are available for indemnity pursuit.

(3) Financial Statements and Reports: These reports outline the assets and liabilities of the individual indemnitors or the principal corporation at a given point in time. Current financial statements should be compared to those that were submitted with the underwriting package. Question any discrepancies.

(a) ssetsCorporate A

ent

Supplies and materials

(b)

Real Estate Machinery and EquipmAccounts Receivable

Personal Assets Residence (In many states, subject to Homestead Acts)

cks and Bonds

heck with the Department of Motor Vehicles for registration)

(4)

Land and Real Estate Bank Accounts/StoInsurance Policies Luxury Items (Jewelry, automobile, boats, etc. C

Letters of Credit: Issued by banks, these are sometimes required by the surety as collateral at the time that the bond was underwritten. If a default occurs, this can be pursued as recovery.

(5) Discharge in Bankruptcy: This may be requested from the surety as

documentation of the actual parties to the bankruptcy and the date of discharge, as well as the type of bankruptcy.

(6)

Judgment: A copy of the judgment against the principal and/or indemnitors

(7)

is requested from the surety to clarify the details of the judgment.

Accounting of Contract Funds: Since the contract funds remaining on a defaulted project may represent a substantial amount of recovery, a complete accounting is requested if an apparent discrepancy exists in the figures.

Effective Date: January 15, 1999 Page 21

Page 23: Office of Surety Guarantees

50 46 1

2. When are Funds Due SBA?

A “Due SBA” occurs when the surety’s reimbursable loss amount is less than SBA’s paid amount. SBA is entitled to its guaranteed percentage of all salvage and recovery obtained on behalf of the defaulted principal. The surety must reimburse or credit SBA its guaranteed share within 90 days of receipt. A “Due SBA” can also occur when an SBA overpayment was made to the surety by SBA for an over billing resulting in a refund to the Agency. Recovery and refund checks are to be sent directly from the surety to DFC at the following address:

U.S. Small Business Administration Denver Finance Center P.0. Box 490 Denver, Colorado 80201-0490

If the surety sends recovery checks to Headquarters instead of DFC, the following procedures are to be used:

a. Incoming Check(s) Procedures

(1) Date stamp all incoming related correspondence. (2) Check the case file for the appropriate SBG number.

(3) Type the SBG number on the lower left corner of the check. If the check

pertains to several SBG numbers, itemize under each SBG number the proportionate amount to each bond.

(4) Write the date that the check was sent to Denver and indicate the preparer's

initials on all related correspondence.

(5) Make three copies of the check and the related correspondence and distribute as follows: a copy with the computer printout attached for the chron file; a copy for the subject file; and a copy for the diary file.

(6) Prepare a route slip with applicable SBG numbers and allotted amounts; the

total number of checks enclosed; and the date that the checks are forwarded to DFC in Denver, CO.

(7) Place the check(s) and route slip in an envelope addressed to DFC and put it

in the Denver overnight box in the Office of the Chief Financial Officer (CFO).

(8) Diary the file for at least 30 days. At that time, follow the “Due SBA”

Effective Date: January 15, 1999 Page 22

Page 24: Office of Surety Guarantees

50 46 1

procedures described in the next section.

(9) surety advising them of the correct mailing address for recovery checks.

b. Due SBA Procedures

Send a letter to the

laim for Reimbursement." CRD uses the following steps to process a "Due SBA."

(1)

tractor file, and to bond and claim number(s) on previous correspondence.

(2)

994H may indicate that the surety’s recovery was offset by the loss paid.

(3) orrect, notify the

surety of the discrepancies and diary the file for follow-up.

(4) number to determine if SBA has received its share of the

recovery funds.

(5) have been received and are indicated in the computer, notate this in the file.

. Recovery Not Received by SBA

"Due SBAs" are submitted on SBA 994H, "C

Check the trade name and the SBG number on the "Due SBA" to make surethat the name and number corresponds to the correct con

Check the figures on the SBA 994H using the same procedures described inChapter 2, “Claim for Reimbursement Procedures.” The SBA

If the surety's calculation and the amount due to SBA are inc

Check the “Accounting Transactions” screen in the computer for the appropriate SBG

If the recovery monies

c

A" and ve been credited to the

appropriate bond, CRD will proceed as follows.

(2)

the check has not been sent, request remittance from

) a copy of the letter for approximately 2 weeks and follow-up at that

(4) s (90 days) or for further action.

If a period of 90 calendar days has passed since the receipt of the "Due SBthere is no indication that the recovery monies ha

(1) Call DFC to verify receipt of the check(s) from the surety.

If the check has not been received by DFC, contact the surety to verify that the check was sent. Ifthe surety in writing.

Diary (3time.

A surety's failure to remit recovery monies to SBA within 3 monthshould be reported in writing to the supervis

Effective Date: January 15, 1999 Page 23

Page 25: Office of Surety Guarantees

50 46 1

d. Recovery Applied to an Incorrect SBG Number

If recovery monies have been applied to an incorrect bond, the computer database records must be adjusted. Contact SBA’s DFC in Denver, CO and the Office of

Chief Information Officer (OCIO) in Headquarters with the correct information for

e.

assistance.

Refund of Recovery Money

Request a SBA 994H from the surety to process a refund due the surety for overpayments

of SBA's share of the recovery. Once CRD receives the information and agrees with the refund, contact OCIO for assistance in correcting the computer

3. W

pursuit is considered economically unfeasible or when the indemnitor(s) have been discharged in bankruptcy. CRD must take the following steps to complete the

ing

a.

information.

hat are the Procedures for Placing a File in “Closing Final” Status? A surety must obtain SBA’s written consent to discontinue subrogation efforts, when further indemnity

clos process.

File Review

CRD must review the case file for each defaulted bond guarantee listedsurety’s request. Request the financial background information on each

(1) in the

respective indemnitor to verify that it is no longer feasible to continue

(2) llection agency versus

attorneys on further indemnity actions if it appears that it is feasible and

(3) case file must

py of the Bankruptcy Discharge. Make sure that the s) listed on the GIA are listed on the Discharge.

b.

indemnity pursuit. Make sure that final reimbursement has been made.

Request that the surety strongly consider the use of a co

economically beneficial to continue indemnity pursuit.

If the indemnitor(s) have been discharged in bankruptcy, the contain a coindemnitor(

Closing Process

Usually the final request for reimbursement is submitted with the closing status report. If it is not received with the surety's request to close, mthe file in the "Closed to Subrogation" status until the final billing is received Disbursements over a year old must be accompanied by supporting documentation. Once the final payment request an

(1)

aintain .

d any applicable documentation have been received, place the specific bond guarantee into a

Effective Date: January 15, 1999 Page 24

Page 26: Office of Surety Guarantees

50 46 1

“Closed Final” status in the computer.

Complete a "Closing Summary Sheet" (Appendix 13) when the entire filbeing closed. Include a brief summary of the surety's subrogation attempts each defaulted project in the closing request, reasons for closing the file, and CRD’s recommendation

(2) e is

on

s concerning the surety's request to discontinue subrogation efforts. Submit this summary to the supervisor for approval to

ty for the ignature.

e tracking system with the closing

information. c.

close the file. Once approval is received, prepare a letter to the suresupervisor’s s

(3) Update the computer and the fil

Disposition of a Closed-Final File

(1) When the entire file is being closed, place a note on the outside of the folder

(2) The OAA will notate the file chargeout record and update the computer file

(3) The OAA forwards the file to the warehouse for storage and enters the

inal files is maintained by the OAA.

4. What is an Indemnity Settlement?

a.

instructing the OAA to close the file.

tracking system that the file is “Closed-Final.”

appropriate storage box number into the computer.

(4) A listing of the closed-f

Definition of a Settlement A settlement occurs when a defaulted contractor and its surety agree upamount less than the total loss amount that will satisfy the contractor's indebtedness to the surety. SBA must concur, in writing, to a surety’s recommendations regarding the settlement offer before the settlement can bfinalized. Once the settlement has been executed, surety must submit SBA’s

on an

e

guaranteed share of such amount within 90 days of receipt. (For details on o SBA, see Paragraph 3-2, “When are Funds Due SBA?”)

b.

submitting payments t

Types of Settlements

Set lement (Immediate Payment of SBA's Pro

(1) Rata Share of Recovery) - e

(2)

tThe surety settled its claim with the indemnitor(s) for an amount less than thsurety's total loss with terms accepted by OSG.

Settlement (Delayed Payment of Settlement Adequately Assured) - The contractor has paid the surety a portion of the settlement amount and the

Effective Date: January 15, 1999 Page 25

Page 27: Office of Surety Guarantees

50 46 1

surety has taken firm collateral from the contractor for the balance of thsettlement amount. CRD must obtain a copy of the collateral and SBA's shof the partial payment from the sur

e are

ety. In some cases, a surety may wish to reinstate the contractor so that money can be made to help pay off the

(3)

e surety by SBA. The surety sends SBA a copy of the draft, money order, or collateral document

re no other claims outstanding on this or any other SBA-guaranteed bond involving this contractor.

c.

settlement. Prior to reinstating the file, the surety must receive at least 50 percent of the settlement amount.

Contested Claim (Scheduled Court Appearance) - The contractor has been presented with a claim which it contests in court. The contractor posts collateral with the surety in the amount of the possible loss from the claim, including legal and administrative fees reimbursed to th

plus confirmation that there a

Policy Guidelines for Settlements

Under the terms and conditions of SBA 990, the authority to act upon proposed settlement offers in connection with defaulted surety bonds lies with the surety andnot SBA. The contractor's contractual relationship is with the surety compatherefore, all matters pertaining to settlement and reinstatement must be arranged with and through the surety. SBA is not a party to the contractual relationshipbetween the contractor and the surety. Since SBA's direct contractual relationship is with the surety company only, SBA will neither negotiate

ny;

nor discuss with the contractor amounts owed to the surety by the contractor or

st obtain SBA’s concurrence to terms negotiated by the surety before entering into a settlement agreement.

d. sed to Review a Settlement Proposal

settlement of such debts. However, the surety mu

Procedures U

settle

with other sureties) to determine SBA’s total net loss on all projects.

(2) settlement proposal.

er and the details of any

(4) Revi

CRD takes the following steps to review a surety’s recommendation for indemnity

ment.

(1) Checks SBA’s payment amount for all defaulted projects (including projects

Determines which defaulted projects are involved in the

(3) Reviews the facts outlined in the settlement letttelephone conversations with the surety representative.

ews the following information in the file.

(a) GIA - Make sure that all of the indemnitors are accounted for in the surety settlement proposal. If not, request information regarding what recovery

Effective Date: January 15, 1999 Page 26

Page 28: Office of Surety Guarantees

50 46 1

actions have been taken against the indemnitor(s) in question.

(b) (including tax returns) - ascertain the financial status of the indemnitors.

(c) Investigative Reports (credit, asset reports, etc.) - Further evaluate the

financial status of the indemnitors.

(d) onal information.

ttlement proposal. Explain any agreement or disagreement with the settlement offer.

(g) r

(h) ement

offer. This response may be in the form of a telephone call or a letter,

ess day. The letter should outline the settlement terms as submitted to SBA.

(i) se

(j) Request a follow-up letter from the surety representative outlining the

(k) Upon receipt of this follow-up letter, diary a copy for an appropriate

period of time. At that time, check the file and computer to be sure that the recovery monies have been received.

Status Reports, Financial Statements

If clarification of questionable items or supporting documentation isneeded, contact the surety for additi

(e) Compare the total net loss figure with the total amount of the settlement

being offered. Consider whether the settlement offer is reasonable compared to the total loss amount.

(f) Prepare a written summarization of the facts of the case, including any

pertinent recommendations concerning the se

Submit recommendations to the AA/OSG, with concurrences from yousupervisor and the DAA/OSG, for approval.

Advise the surety of SBA's recommendation concerning the settl

depending upon the urgency of the situation. If the response is by phone, prepare a letter of confirmation no later than the next busin

If the settlement proposal is not satisfactory to SBA, CRD should advithe surety and ask it to re-negotiate the settlement terms.

settlement terms and the final outcome. If the settlement is executed,CRD must request a copy of the executed agreement and SBA’s share ofmonies received.

Effective Date: January 15, 1999 Page 27

Page 29: Office of Surety Guarantees

50 46 1

5. When are Files Reinstated?

a. Definition of a Reinstatement

A reinstatement occurs when the principal becomes eligible for further surety bond guarantees and his/her file is returned to the appropriate area office for underwriting consideration.

b. General Circumstances Prompting Reinstatement

Circumstances prompting reinstatement of a contractor's case file to the appropriate area office for future bonding include the following.

(1) A settlement agreement has been executed between the surety and the

principal and/or indemnitor(s) and SBA has been appropriately satisfied. See paragraph 3-4 of this SOP for the specific types of settlements.

(2) Closed-No Loss (SBA Completely Reimbursed). The contractor has satisfied

the surety’s losses and the surety has repaid SBA in full.

(3) Closed-No Loss (Balance of SBA Loss Adequately Secured). The surety has repaid SBA at least one-half of SBA's loss and has obtained a promissory note from the contractor to pay the balance, or has obtained collateral of equal value. Reinstate the file as a Closed-No Loss.

(4) The contractor’s indebtedness to the surety is discharged by operation of law

(e.g., bankruptcy discharge.)

c. Policy Guidelines for Reinstatement

As a result of the contractual relationships established by the SBA 990, the surety is the only party that may request reinstatement of a principal's file (except for bankruptcy). A principal whose debt has been expunged through bankruptcy may request that their claims file be reinstated for underwriting consideration. Often OSG and area office staffs are contacted by the principal, the principal's attorney, or the principal's current agent regarding future bonding. In these instances, SBA personnel may act as a liaison between the surety and the principal and encourage repayment negotiations between the two parties. The surety must then notify OSG when the principal has resolved his/her claim obligations so that reinstatement procedures can be initiated.

d. Reinstatement Procedures

CRD takes the following steps to reinstate a file.

Effective Date: January 15, 1999 Page 28

Page 30: Office of Surety Guarantees

50 46 1

(1) the file and print a copy of the appropriate claims computer

screens.

(2) een

requested and that the reinstatement will be processed upon its receipt.

(3) tal, e file to ascertain that the terms of the

settlement have been satisfied.

(4) the computer database records to reflect the reinstatement or closing

status.

(5) tatement letter (appendix 13) and submit it to the supervisor for approval.

(6)

the following steps should be taken to return the file to the area office.

(a)

ropriate area office. The reinstatement file is maintained by the OAA.

(b) e the Optional

23 chargeout record with the date of the reinstatement.

(c) a ail or overnight express, depending upon the urgency of

the matter.

Retrieve

If the file was previously closed-final and sent to storage, request that the records center return it to OSG. Inform the area office that the file has b

If a settlement has been approved, check the net loss figure, recovery toand default status, and review th

Update

Prepare a reins

After the reinstatement has been approved and the reinstatement letter signed,

Keep copies of the computer printout, the reinstatement letter, and documentation that supports the reinstatement for OSG’s records. This information should be placed in the “reinstatement” folder under the app

The OAA will update the file tracking system and notat

Send the entire file with the reinstatement letter to the appropriate areoffice via m

Effective Date: January 15, 1999 Page 29

Page 31: Office of Surety Guarantees

50 46 1

Chapter 4

Procedures for Sureties that are Defunct, in Rehabilitation, or in Liquidation 1. What are the Definitions of Each Status?

a. Defunct Surety A defunct surety has ceased to function and no longer conducts business operations.

b. Surety in Rehabilitation A surety in rehabilitation is under corporate reorganization of

Chapter 11 of the Bankruptcy Act in an attempt to reinstate the surety to its former condition of successful operation and solvency.

c. Surety in Liquidation A surety in liquidation is in the process of settling its financial

affairs by reducing its assets to cash, discharging liabilities, and dividing surplus or loss. Liquidation may precede or follow dissolution, which is the end of the legal existence of a corporation.

2. What are the Claims Handling Procedures for Sureties that are Defunct, in

Rehabilitation, or in Liquidation?

If a surety becomes insolvent, all rights or benefits conferred on the surety under a valid and binding Prior Approval agreement will accrue only to the trustee or receiver of the surety. SBA will not be liable to the trustee or receiver of the insolvent surety except for the guaranteed portion of any loss incurred and actually paid by such surety or its trustee or receiver under the guaranteed bonds. The State Insurance Department where the surety is located becomes responsible for settling claims and handling all claims matters. Accordingly, the trustee or receiver must submit quarterly status reports accounting for all claims paid, all funds received and all settlements being considered. All correspondence concerning sureties that are defunct, in rehabilitation, or liquidation are referred to the supervisor for action. Refer to Chapter 2, “Claims For Reimbursement Procedures,” of this SOP to process payment requests from insolvent sureties.

3. What are the Reinstatement Policies for Contractors?

a. Discharge of Debt The contractor’s indebtedness to the surety is discharged by operation of law.

b. Full Reimbursement of Loss by Principal The contractor's file may be reinstated if the

principal has repaid the appropriate State insurance liquidator the full loss incurred by the surety, and valid evidence of repayment is received by SBA.

c. Settlement Effected Prior to the Surety Company's Status Change If a settlement

between the principal or principal's legal representative and the surety company was effected prior to the surety company's status change to defunct, rehabilitation, or

Effective Date: January 15, 1999 Page 30

Page 32: Office of Surety Guarantees

50 46 1

liquidation, then the amount and the terms of the settlement should stand as the duly renegotiated debt.

d. Settlement Effected After the Surety Company's Status Changed A new settlement

regarding a defaulted SBA-guaranteed bond may be effected between a principaState Insurance Department as li

l and a quidator, if the principal's surety is defunct, in

rehabilitation, or in liquidation.

Effective Date: January 15, 1999 Page 31

Page 33: Office of Surety Guarantees

50 46 1

Appendix 1

Index of Forms and Reports

Forms Paragraph SBA Form 990, Surety Bond Guarantee Agreement 2-12 SBA Form 991, Surety Bond Agreement Addendum 2-12 SBA Form 994, Application for Surety Bond Guarantee Assistance 2-12 SBA Form 994B, Surety Bond Guarantee Underwriting Review 2-12 SBA Form 994C, Surety Bond Guarantee Review Update 2-12 SBA Form 994F, Schedule of Uncompleted Work 2-12 SBA Form 994H, Default Report, Claim for Reimbursement, and, Record of Administrative Action 2-12 SBA Form 1261, Statements Required by Law and Executive Orders 2-12 SBA Form 1624, Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transactions 2-12 SBA Form, 912, Statement of Personal History 2-12 Optional Form 23, Chargeout Record 2-9 Reports Reserved

Effective Date: January 15, 1999 Page 32

Page 34: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 33

Page 35: Office of Surety Guarantees

50 46 1

Appendix 2 (paragraph 2-12)

Sample of Optional Form 23, Chargeout Record

Effective Date: January 15, 1999 Page 34

Page 36: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 35

Page 37: Office of Surety Guarantees

50 46 1

Appendix 3 (paragraph 2-12)

Sample of SBA Form 912, Statement of Personal History

Effective Date: January 15, 1999 Page 36

Page 38: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 37

Page 39: Office of Surety Guarantees

50 46 1

Appendix 4 (paragraph 2-12)

Sample of SBA Form 994, Application for Surety Bond Guarantee Assistance

Effective Date: January 15, 1999 Page 38

Page 40: Office of Surety Guarantees

50 46 1

SURETY BOND GUARANTY APPLICATION PROCEDURES 1. Applicant contacts a surety, or its representative, which participates in SBA’s Surety Bond

Guarantee Program. The nearest SBA Regional Office may refer applicant to these sureties. 2. Surety will provide applicant with:

a. SBA Form 912 (Statement of Personal History) b. SBA Form 1261 (Statements Required by Laws and Executive Orders) c. SBA Form 994 (Application for Surety Bond Guarantee Assistance) d. SBA Form 994F (Schedule of Uncompleted Work) e. Documents relating to credit information and business history which are standard to the

surety industry. Applicant completes these documents and returns them to the surety.

3. If the applicant is for final (performance and/or payment) bonds, it must be accompanied by the Contractor Fee. The check is payable to SBA (or Small Business Administration).

4. Upon completion of favorable underwriting, surety forwards all required documents, including SBA Form 990 (Guarantee Agreement) and SBA Form 991 (Surety Bond Guarantee Agreement Addendum), to the appropriate SBA Regional Office.

5. The SBA Surety Bond Guarantee staff reviews the application, makes the final determination, and notifies surety of its decision. SBA returns the countersigned Guarantee Agreement to the surety. Where SBA declines to issue the guarantee, the check for the Contractor Fee is also returned to the surety.

6. If any adverse information develops subsequent to SBA’s approval to the guarantee, surety may decline to issue the bonds.

PLEASE NOTE: The estimated burden for completing this form is 5 minutes per response. You are not required to respond to any collection of information unless it displays a currently valid OMB approval number. Comments on the burden should be sent to U.S. Small Business Administration, Chief, AIB, 409 3rd St., S.W., Washington, D.C. 20416 and Desk Officer for the Small Business Administration, Office of Management and Budget, New Executive Office Building, Room 10202, Washington, D.C. 20503. OMB Approval (3245-0007).

Effective Date: January 15, 1999 Page 39

Page 41: Office of Surety Guarantees

50 46 1

Appendix 5 (paragraph 2-12)

Sample SBA Form 994B, Surety Bond Guarantee Underwriting Review

Effective Date: January 15, 1999 Page 40

Page 42: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 41

Page 43: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 42

Page 44: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 43

Page 45: Office of Surety Guarantees

50 46 1

Appendix 6 (paragraph 2-12)

Sample SBA Form 994C, Surety Bond Guarantee Review Update

Effective Date: January 15, 1999 Page 44

Page 46: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 45

Page 47: Office of Surety Guarantees

50 46 1

Appendix 7 (paragraph 2-11)

Sample of SBA Form 994F, Schedule of Uncompleted Work

Effective Date: January 15, 1999 Page 46

Page 48: Office of Surety Guarantees

50 46 1

PLEASE NOTE: The estimated burden for completing this form is 5 minutes per response. You are not required to respond to any collection of information unless it displays a currently valid OMB approval number. Comments on the burden should be sent to U.S. Small Business Administration, Chief, AIB, 409 3rd St., S.W., Washington, D.C. 20416 and Desk Officer for the Small Business Administration, Office of Management and Budget, New Executive Office Building, Room 10202, Washington, D.C. 20503. OMB Approval (3245-0007).

Effective Date: January 15, 1999 Page 47

Page 49: Office of Surety Guarantees

50 46 1

Appendix 8

(paragraph 2-12) Sample SBA Form 990, Surety Bond Guarantee Agreement

Effective Date: January 15, 1999 Page 48

Page 50: Office of Surety Guarantees

50 46 1

By the signature of its authorized representative on the reverse side of this form (Blocks 16-18), the U.S. Small Business Administration guarantees the Surety named in Item 2 against loss resulting from the breach by the Principal of the terms of the bond(s) described in Blocks 11, 12, 13, 22 and 24, pursuant and subject to 15 U.S.C. §694a and b, the regulations thereunder (13 CFR Part 115) and the conditions and representations stated below, in reliance on the declarations made on the reverse side hereof, and on the several forms submitted and signed by surety as applicable. This guaranty shall become effective upon the issuance (as defined in said regulations) of the SBA-guaranteed bond by the Surety. 1. Surety represents that I has determined the accuracy and completeness of the information in the Forms submitted

by Surety which relate to this agreement, in accordance with generally accepted surety industry underwriting practices. Said Forms are incorporated herein by this reference.

2. Surety shall, conditional on the execution of this guarantee by SBA, if the Surety determines that the Contract

price is reasonable and the contract amount does not exceed $1,250,000, become Surety on bid, performance, payment, and other ancillary and coterminous bond(s) required for the award of the Contract. Surety may withdraw its decision to issue such bond(s) if prescribed underwriting conditions are not met or if additional information comes to the attention of Surety of a nature so as to change its underwriting determination, and notice is given to SBA.

3. The terms and conditions of such bond(s) will be in accord with those generally established and accepted by the

surety industry for the type of contract for which such bond(s) are required to be furnished by Principal, and Surety represents that such bonds would not be provided for Principal on this Contract without this SBA guarantee.

4. If any suit or claim is filed against Surety upon said bond(s), Surety shall inform SBA of the same within 30 days

of receipt of notice therof in the Surety’s home office. Unless SBA decides otherwise, and so notifies Surety, Surety shall take charge of all suits or claims arising under said bond(s) and compromise, settle or defend such suit or claim until so notified. Surety shall take all steps necessary to mitigate any loss resulting from Principal’s default. Surety shall not join SBA in any lawsuit to which Surety is a party unless SBA has denied liability or has agreed to such joinder in writing.

5. No employee of SBA has authority to waive, change or alter the terms of this Agreement, unless such alterations

are separately attached hereto and both the SBA and Surety’s authorized representatives have signed and dated their assent thereto.

6. This Agreement is made exclusively for the benefit of SBA and the Surety, and does not confer any rights or

benefits on any other party, such as any right of action against SBA by any person claiming under SBA-guaranteed bonds or otherwise. In the event of the Surety’s insolvency, SBA shall not be liable to the receiver or other representative of the surety except for any loss incurred and monies actually paid by such representative under the bonds guaranteed by SBA.

7. If any provision of this Agreement is in conflict with any SBA regulation, such regulation shall prevail in

construing or applying this Agreement.

Any intentionally false statement or willful misrepresentation in connection with the procurement of the Guarantee or claim for payment pursuant to this Agreement is a violation of Federal law, subject to criminal and civil prosecution under 18 U.S.C. §§ 287, 371, 1001, 15 U.S.C. §645, or 31 U.S.C. §231, carrying fines up to $10,000 and imprisonment of up to five years.

8.

6 nd Budget, New Executive Office

Building, Room 10202, Washington, D.C. 20503. OMB Approval (3245-0007).

PLEASE NOTE: The estimated burden for completing this form is 5 minutes per response. You are not required to respond to any collection of information unless it displays a currently valid OMB approval number. Comments on the burden should be sent to U.S. Small Business Administration, Chief, AIB, 409 3rd St., S.W., Washington, D.C. 2041and Desk Officer for the Small Business Administration, Office of Management a

Effective Date: January 15, 1999 Page 49

Page 51: Office of Surety Guarantees

50 46 1

Appendix 9 (paragraph 2-12)

Sample of SBA Form 991, Surety Bond Guarantee Agreement Addendum

Effective Date: January 15, 1999 Page 50

Page 52: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 51

Page 53: Office of Surety Guarantees

50 46 1

Appendix 10 (paragraph 2-12)

Sample of SBA Form 1624, Certification, Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transaction

Effective Date: January 15, 1999 Page 52

Page 54: Office of Surety Guarantees

50 46 1

-2- INSTRUCTIONS FOR CERTIFICATION

1. By signing and submitting this proposal, the prospective lower tier participant is providing the certification set out

below. 2. The certification in this clause is a material representation of fact upon which reliance was placed when this

transaction was entered into. If it is later determined that the prospective lower tier participant knowingly rendered an erroneous certification, in addition to other remedies available to the Federal Government, the department or agency with which this transaction originated may pursue available remedies, including suspension and/or debarment.

3. The prospective lower tier participant shall provide immediate written notice to the person to which this proposal

is submitted if at any time the prospective lower tier participant learns that its certification was erroneous when submitted or has become erroneous by reason of changed circumstances.

4. The terms “covered transaction,” “debarred,” “suspended,” “ineligible,” “lower tier covered transaction,”

“participant,” “person,” “primary covered transaction,” “principal,” “proposal,” and “voluntary excluded,” as used in this clause, have the meanings set out in the Definitions and Coverage sections of the rules implementing Executive Order 12549. You may contact the person to which this proposal is submitted for assistance in obtaining a a copy of those regulations (13 CFR Part 145).

5. The prospective lower tier participant agrees by submitting this proposal that, should the proposed covered

transaction be entered into, it shall not knowingly enter into any lower tier covered transaction with a person who is debarred, suspended, declared ineligible, or voluntarily excluded from participation in this covered transaction, unless authorized by the department or agency with which this transaction originated.

6. The prospective lower tier participant further agrees by submitting this proposal that it will include the clause

titled “Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion—Lower Tier Covered Transactions,” without modification, in all lower tier covered transactions and in all solicitations for lower tier covered transactions.

7. A participant in a covered transaction may rely upon a certification of a prospective participant in a lower tier

covered transaction that is not debarred, suspended, ineligible, or voluntarily excluded from the covered transaction, unless it knows that the certification is erroneous. A participant may decide the method and frequency by which it determines the eligibility of its principals. Each participant may, but is not required to, check the Nonprocurement List.

8. Nothing contained in the foregoing shall be construed to require establishment of a system of records in order to

render in good faith the certification required by this clause. The knowledge and information of a participant is not required to exceed that which is normally possessed by a prudent person in the ordinary course of business dealings.

Except for transactions authorized under paragraph 5 of these instructions, if a participant in a covered transactiknowingly enters into a lower tier covered transaction with a person who is suspended, debarred, ineligible, or voluntarily excluded from participation in this transaction, in addition to other remedies available to the FederGovernment, the department or agency w

9. on

al ith which this transaction originated may purse available remedies,

including suspension and/or debarment.

Appendix 11

Effective Date: January 15, 1999 Page 53

Page 55: Office of Surety Guarantees

50 46 1

(paragraph 2-12) Sample of SBA form 1261, Statements Required by Law and Executive Orders

Effective Date: January 15, 1999 Page 54

Page 56: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 55

Page 57: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 56

Page 58: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 57

Page 59: Office of Surety Guarantees

50 46 1

Appendix 12 (paragraph 2-12)

Sample SBA Form 994H, Default Report, Claims for Reimbursement and Record of Administrative Action

Effective Date: January 15, 1999 Page 58

Page 60: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 59

Page 61: Office of Surety Guarantees

50 46 1

Appendix 13

(paragraph 3-3) Sample of the Closing Summary Review Sheet

SUMMARY REVIEW SHEET

Single Bond Report

IDENTIFICATION CASE NAME SURETY NAME CLOSED FINAL SBG# Bond Amount $ Claim No. Net Amt. $ SBA Recovery $ Surety Net Loss $

COMMENTS RECOMMENDED BY__________________________DATE_________________ APPROVED BY_______________________________DATE_________________

Effective Date: January 15, 1999 Page 60

Page 62: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 61

Page 63: Office of Surety Guarantees

50 46 1

Appendix 14 (paragraph 3-5)

Sample of a Reinstatement Letter DATE: TO: _____________________, Supervisory SBG Specialist Area Office FROM: _____________________, Director Claims & Recovery Division Office of Surety Guarantees SUBJECT: REINSTATEMENT OF _______________________ SBG# SURETY The subject file, including claims information, is being transmitted with this memorandum of reinstatement into your normal underwriting portfolio. As of_______________claims paid have been fully reimbursed and the following disposition applies to this file:

Closed-no loss (no claims/expenses paid by survey). ____ Closed-no loss (claims/expenses reimbursed in full by principal;/indemnitor). ____ Surety settled with indemnitor for $_____________ ____ with loss to SBA of $____________

Comments: Please consider this file for further bond guarantee assistance based upon the disposition information above and your assessment of its future in the Surety Bond Guarantee Program.

Effective Date: January 15, 1999 Page 62

Page 64: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 63

Page 65: Office of Surety Guarantees

50 46 1

Glossary The terms listed below are frequently used in SBA's Surety Bond Guarantee Program. The definitions are quoted or paraphrased from published definitions, and reflect common usage and connotation within the program. 1. Ad Damnum: In pleading, "To the damage." The technical name of that clause of the writ,

declaration, or, more commonly, the complaint, which contains a statement of the plaintiff's money loss, or the damages which he claims. The "ad damnum" in the complaint is in excess of $100,000.

2. Amicable Demand: Agreed or assented to by parties having conflicting interests or a dispute; as

opposed to hostile or adversary. 3. Attorney-in-Fact: Any person who is authorized by another to act in his/her place, either in a

particular matter or generally. The authorization is embodied in a document known as a “letter of attorney” while the authority itself is known as “power of attorney”

4. Balance Sheet: A statement of financial position of any economic unit disclosing its assets, at cost,

depreciated cost, or other indicated value, its liabilities, and the equity of the owners in conformity with generally accepted accounting principles.

5. Bankruptcy: The state or condition of being unable to meet one’s financial obligation; the legal

procedure under which the affairs of an insolvent person’s business are turned over to a receiver or trustee for the administration and payment of debts.

a) Voluntary Bankruptcy: When a person or business cannot pay its debts, it can voluntarily petition

the court to declare it bankrupt. b) Involuntary Bankruptcy: The creditors of a person or business file the petition for bankruptcy

against the debtor. 6. Types of Bankruptcies

a) Chapter 7: A Chapter 7 bankruptcy is known as a liquidation. Generally, the debtor has few, if any, assets. What assets a debtor may have are sold and the money distributed to its creditors. Again, those assets are in the vast majority of cases, non-existent. Chapter 7 is available to individuals. The court will, however, allow a corporation to change from a Chapter 11 bankruptcy to a Chapter 7 bankruptcy.

b) Chapter 11: A Chapter 11 bankruptcy is known as a reorganization. It is available to

both corporations and individuals. Under a Chapter 11 bankruptcy, the debtor usually possesses sufficient assets, or has the capacity to obtain them, to satisfy at least a portion of the creditors' claims. In the case of a corporation, the debtor will remain in business and the future income is used to pay the creditors. An individual who files a Chapter 11 usually is a person that is capable of earning a good living but does not have a regular wage, such as to allow him to file a Chapter 13. In a Chapter 11, the payoff

Effective Date: January 15, 1999 Page 64

Page 66: Office of Surety Guarantees

50 46 1

may be in any amount, from one cent on the dollar through 100 cents on the dollar.

c)

Chapter 13: A Chapter 13 bankruptcy is known as the wage earners' bankruptcy. Tqualify, an individual must have a steady source of income, though not necessarily wages. The court determines the "disposable" amount of the debtor's income. Again, a prepayment schedule is worked out which allows for partial or full reim

o

bursement of all creditors.

7. to

the amount of the principal's bid and of the next low bidder who can qualify for the contract.

8. ty guarantee the successful performance of a contract by a third party,

called the principal.

9. must respond for loss under the terms of the given bond, i.e., the face amount of the bond.

10. issue ds to a specified small contractor within preapproved

terms, conditions, and limitations.

11. n insurer (the ceding insurer) with the object of reducing the possible liability of the latter.

12. ance protection as distinquished from the reinsurer that has issued the reinsurance protection.

13. Cea)

ned policies, or defined divisions of business, as agreed to in the reinsurance

rance protection.

another party.

16.

Bid Bond: A bond given by a bidder for a supply, service, or construction contract to guarantee that the bidder, if awarded such a contract within the time stipulated, will enter inthe contract and furnish the prescribed performance bond. Default will ordinarily result in liability of the principal and the surety for the difference between

Bond: An agreement whereby one party, called the surety, obligates itself to a second parcalled the obligee, to

Bond Penalty: The amount by which a surety

Bonding Lines: A commitment to a surety company by the SBA that allows the surety to bid, payment, and performance bon

Cede: To pass on to another insurer (the reinsurer) all or part of the insurance written by a

Ceding Company: An insurer that has bought reinsur

ssion:

The unit of insurance passed to a reinsurer by a primary company that issued a policy tothe original insured. A cession may accordingly be the whole or a portion of single risks, deficontract.

b) The act of ceding where such an act is necessary to invoke the reinsu

14. Claim: A party’s demand for something believed due from 15. Claimant: One who has asserted a claim under the bond.

Collateral: Personal or business possessions assigned by the principal as a pledge of

Effective Date: January 15, 1999 Page 65

Page 67: Office of Surety Guarantees

50 46 1

repayment to the surety in the event of default by the principal. Collateral Document: A legal document securing the item pledged as collateral, i.e., promissory notes, mortgages,

7. Collateral Documents: A legal document securing the item(s) pledged as collateral, i.e.,

18. rincipal and indemnitors

in an effort to collect the debt owed to the surety. Generally. they work on a contingency basis

19.

completed and materials used. These funds are also usually escrowed in a bank by the obligee,

20. ses from the obligee to the principal

when final settlement is made between the two under the contract, it is the basis of the

21.

each co-surety must sign the guarantee agreement (SBA Form 990) and the lead or primary surety must be designated.

22. hip of a person or business that will be converted into cash

in the normal operation of business at an early date, usually within 1 year. These are also

23. e is entitled to

recovery from the insurer; an amount of loss which is to be borne by the surety itself and is

24. re of a principal to meet obligation when due. This gives rise immediately

to the surety’s obligation to the obligee provided there are no conditions precedent to the

6.

27.

assignments, etc.’

1promissory notes, mortgages, assignments, etc.

Collection Agency: A private firm hired by the surety to locate the p

so there is no cost to the surety or SBA unless monies are recovered.

Contract Funds: Funds that are paid to the principal for the completion of the project. These progress payments are usually cash and made monthly. based upon estimates of work

and have a direct effect on the principal's financing of the job and his working capital.

Contract Price: The whole sum of money which pas

premium charge on most types of construction bonds.

Co-Surety: One of two or more surety companies participating directly in a bond. Their obligation to the obligee (owner) is joint and several but sometimes a limit of liability for each surety is stated between themselves. An authorized representative of

If a default occurs, claim payments are made to the lead surety only.

Current Assets: Items of owners

referred to as "short term" assets.

Deductible: The portion of an insured loss to be borne by the insured before h

therefore deducted from the total loss on which a claims is made to the SBA.

Default: The failu

surety’s liability. 25. Diary: A term used for scheduling a specific time to follow-up on an action.

Discharge of Debtor: The debtor is legally released from the obligation of all his debts which 2were or might be proved in the bankruptcy proceedings so that he may thereafter engage in business and acquire property without its being liable for the satisfaction of such former debts.

Dun andBradstreet: Dun and Bradstreet is a private firm which gathers financial information

Effective Date: January 15, 1999 Page 66

Page 68: Office of Surety Guarantees

50 46 1

about individuals and firms and prepares a report describing the financial condition of the

8. Equifax: A claim investigative firm whose services are available to the general public. The

te rt.

0. Faculative Reinsurance: Reinsurance in which specific coverage is arranged individually for

to cover risks on some predetermined basis.

t a

32. r against a debtor under

which the debtor is required to pay the debt in total or forfeit his right of redemption of the ay

33.

possession or under control of, or owing by, another are applied to payment of former's debt to nt is

ebt. 34. e indemnitor

whereby the indemnitors undertake and agree to reimburse the surety for monetary loss al

35. An undertaking or contract to assume the liability for a debt, to perform a duty

upon the default of another, or in general to give assurance that a thing will be done, or an

6. st of the states allowing a household or head

of a

8. tual surety payouts plus outstanding reserve less recovery

subject. Dun and Bradstreet deals only with its subscribers and in no way assumes any of thesubscriber's risk.

2types of reports available include a Current Assets and Income Report, a Skip-Trace LocaReport, and the Recovery and Subrogation Repo

29. Estimated Loss: An estimate of the amount that a surety expects to pay for reported and

unreported claims under the terms of the bond.

3each exposure. This is contrasted with treaty reinsurance, under which each member of the group agrees in advance

31. Financial Reports: Reports that describe the financial condition of a business or individual a

specific period of time.

Foreclosure: The action or legal proceeding brought by the credito

property put up as security. The creditor, upon gaining full possession of the property mkeep it or sell it in a foreclosure sale, depending upon State laws.

Garnishment: A statutory proceeding whereby a person's property, money, or credits in

third person by proper statutory process against debtor and garnishee. Usually the defendarequired to surrender a percentage of his future wages in order to satisfy an outstanding d

General Indemnity Agreement: A written contract between the surety and th

suffered by the surety as a result of a default by the principal. It may be signed by individuor corporate indemnitors, who determine what assets are liable for the loss.

Guaranty:

obligation filled as promised. It provides that the guarantor will be liable for the failure to perform. Homestead Exemption Laws: Laws passed in mo3of a family to designate a house and land as his homestead, and exempting the same homestead from execution for his general debts.

37. Improvement: A change in the condition of the property in real estate, often the addition

building to a vacant lot.

Incurred Loss: The total of ac3

Effective Date: January 15, 1999 Page 67

Page 69: Office of Surety Guarantees

50 46 1

received, contract funds anticipated, and collateral (e.g. cash, certificates of deposit, and irrevocable letters of credit).

39. Indemnitor: A person or company which agrees with a surety to hold surety harmless from

any loss or exposure incurred on a bond that it issues. 0. Indemnity: A collateral contract or assurance by which one person engages to secure another

2. Insolvency: The condition in which one's total assets, if realized, would not be sufficient to

legal debts.

43. all of the

4against an anticipated loss; this term pertains to liability for loss shifted from one person heldlegally responsible to another person.

41. Imminent Breach: A threat to the successful completion of a bonded contract which, unless

remedied by the surety, makes a default under the bond appear to be inevitable.

4cover one's total liabilities; the inability of a borrower to meet financial obligations as they mature; or having insufficient assets to pay

Judgment: The final decree, ruling, or sentence handed down by a court after hearing

evidence in a trial or other proceeding.

a) Consent Judgment: A judgment given in the progress of a cause upon some plea, proceeding, or default, which is only intermediate and does not finally determine or

b) Dcomplete the suit. efault Judgment: A judgment rendered in consequence of the non-appearance of th

defendant. e

c) Interlocutory Judgment: A judgment given in the progress of cause upon some plea, proceeding, or default, which is only intermediate and does not finally determine or

d) Jcomplete the suit. udgment Creditor: One who has obtained a judgment against his debtor, under which he

e) Jcan enforce execution. udgment Debtor: A person against whom judgment has been recovered and which remains unsatisfied.

f) Judgment Lien A lien binding the real estate of a judgment debtor, in favor of the holder the judgment and giving the latter a right to levy on the land for the satisfaction of his judgment.

of

45. 6. damages has been

4. Lien: The right or claim that a creditor has against the property of a debtor, under which he4

may detain or seize the property pending the payment of a debt.

Liquidation: The disposal of the collateral securing a loan; conversion of assets into cash.

Liquidated Damages: The term is applicable when the amount of the4ascertained by the judgement in the action, or when a specific sum of money has been expressly stipulated by the parties to a bond or other contract as the amount of damages to be recovered by either party for a breach of the agreement by the other.

Effective Date: January 15, 1999 Page 68

Page 70: Office of Surety Guarantees

50 46 1

47. r, or control that courts acquire over property

in suit pending action and until final judgment. Notice of Lis Pendens: A notice filed on public

ent. The notice is for the purpose of preserving rights pending litigation.

48.

49.

substituted service of process over persons or corporations which are nonresidents of the State, ation

he performance or execution of those purposes.

50.ost of doing so; the upkeep or preservation of the condition of property.

or ffect

ard may be made for a contract beyond a certain amount for construction, alteration, or repair of a public building or public work of the U.S. Government.

3. Net Worth: The total assets of a person or business less the total liabilities (amounts due to

54. er. 5. sting one, between the

validity of the new one.

ent

Lis Pendens: A pending suit. Jurisdiction, powe

record for the purpose of warning all persons that the title to certain property is in litigation, and that they are in danger of being bound by an adverse judgm

Litigation: Contest in a court of law for the purpose of enforcing a right or seeking a remedy; the practice of taking legal action through the judicial process.

Long Arm Statute: Various State legislative acts which provide for personal jurisdiction, via

and which voluntarily go into the State. This may be directly, by agent, or by communicwith persons in the state, for limited purposes in actions which concern claims relating to t

Maintenance: In general, the work of keeping up property or equipment in good sound condition or the c

51. Material Misrepresentation: Any statement of alleged fact which is untrue or partly untrue

which is so stated as to lead to false conclusions and which has an important or critical eon the outcome.

52. Miller Act: Federal statute which requires the posting of performance and payment bonds

before an aw

5

creditors).

Non-Recoverable Expenses: Expenses incurred but not legally recoverable from the borrow

Novation: Substitution of a new contract debt, or obligation for an exi5same or different parties. The substitution by mutual agreement of one debtor for another or of one creditor for another, whereby the old debt is extinguished. The requisites of a novation are a previous valid obligation, an agreement of all the parties to a new contract, the extinguishment of the old obligation, and the

56. Obligee: (Also called "owner") the party to whom someone else is obligated under a contract;

the party protected by the bond against loss; an obligee may be a person, firm, corporation, government, or an agency of a government.

57. Payback: A plan which specifies the gross sum of recovery money to be paid to the surety by

the principal and/or indemnitors and specifies a time schedule to be adhered to for reimbursement; it also applies to a payment schedule which will be utilized for reimbursem

Effective Date: January 15, 1999 Page 69

Page 71: Office of Surety Guarantees

50 46 1

from the surety to SBA.

58. which the principal is obligated to pay under the contract. This liability may be contained in the performance

59. is the maximum amount

for which a surety company may normally be held liable under the bond.

60. ner against loss resulting from the failure of the contractor to complete the work in accordance with the plans and specifications;

2. Prime Contractor: Person with whom the obligee has contracted to perform the contract.

63.The principal is usually the contractor or

subcontractor for whom SBA's surety bond guarantee is written.

64. A form of pro rata reinsurance (proportional) in which the reinsurer assumes an agreed percentage of each insurance policy being insured and shares all premiums

5. Recovery: Reimbursement received by a surety from subrogation, indemnitors, or from

nt to a surety company.

7.

9. from the contract funds until

he lien period has expired.

mercial insurer.

Payment Bond: A bond given for the labor and material used in the work

bond, in which case a separate labor and material bond (payment bond) is not given.

Penal Sum of the Bond: Also called "penalty" and "bond penalty,"

Performance Bond: A bond which indemnifies the ow

performance bonds frequently incorporate payment bond liability. 61. Power of Attorney: An instrument authorizing another to act as one's agent or attorney to the

extent set forth in the instrument creating the power.

6

Principal: The one who is primarily responsible for fulfilling the obligation set forth on the contract and for whom the bond is issued.

Quota Share Reinsurance:

and losses accordingly with the reinsured.

6salvage following a loss.

66. Refund: The amount returned to SBA as a result of SBA's inadvertent overpayme

Reimbursement: Amount that is repaid for the loss incurred. 6

68. Reinsurance: The shifting of risk by a primary insurer (known as the reinsurer).

Retained Funds: A reserve which is usually held by the obligee 6the work has been completed and paid to the principal after t

70. Retention: The portion of a risk kept by an insurer for its own account while ceding the

balance to a reinsurer: also refers to that portion of a risk retained by a corporation for its ownaccount, the balance being transferred to a com

71. Risk: The element of uncertainty regarding economic loss.

Effective Date: January 15, 1999 Page 70

Page 72: Office of Surety Guarantees

50 46 1

72. Rumble: A situation where a claim has been made against a bond, but the surety expects the

73. hich is liquidated to

offset, in whole or in part, the loss and expense incurred by a surety in satisfying obligations it

4. Settlement: An agreement by which parties having disputed matters between them determine

5. Specialty Surety: A surety company which specializes in writing surety bonds for business

6. Standard Surety: A surety company which charges the standard premium rates for contract

ight of the obligee.

79. tracted with a prime contractor or with another

subcontractor to perform a contract.

80. d in

1. ent of the Treasury Circular

the f

the principal (contractor) defaults on the

2

83.

claim to be satisfied with no loss or expense.

Salvage: Property which is recovered from the principal or indemnitors w

has sustained under a bond.

7what is coming from one to the other; any agreement for the adjustment, liquidation, or disposal of obligation; satisfaction of a claim or demand between parties.

7which cannot ordinarily obtain bonding through the standard bond market.

7bonds; usually is a well-known company which adheres to a more conservative underwriting philosophy.

77. Subrogation: The right of one who has paid to be indemnified by the other; the legal r

the surety to recover losses it paid to 78. Subcontract: A contract award made by a prime contractor to a any contractor for a portion of

the work received by the prime contractor.

Subcontractor: A person who has con

Surety Bond: A written agreement wherein one party (the surety) obligates itself to a seconparty (the obligee or beneficiary) to answer for the default of a third party (the principal) failing to perform specified acts within a stated time. Such obligations include payment of debts and responsibility for defaults.

Surety Company: Usually a corporation listed on the Departm8570, "Surety Companies Acceptable on Federal Bonds," and as otherwise qualified by Small Business Administration, which guarantees to the obligee (owner) the payment omoney or the performance of a contract in the eventperformance of said contract. The surety company is entitled to be indemnified (compensated for actual loss sustained) via an indemnity agreement from the principal and principal's indemnitors.

8 . Treaty: A contract or arrangement under which risks or shared by agreement between insurers, usually through a process of reinsurance.

Treaty Reinsurance: A reinsurance agreement between an insurance company and a reinsurer,usually for one year or longer, which may be divided into two broad classifications:

Effective Date: January 15, 1999 Page 71

Page 73: Office of Surety Guarantees

50 46 1

a) the participating type, which provides for sharing of risks between the ceding company anthe reinsurer; and

b) the excess

d

type, which provides for indemnity by the reinsurer for losses that exceed some specified, predetermined amount.

84. Trust Account: Where money or property is deposited to be kept intact and not co-mingled

with other funds or property of the bank, and is to be returned in kind to the depositor or devoted to the particular purpose or requirement of depositor payment of particular debts or obligations.

Effective Date: January 15, 1999 Page 72

Page 74: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 73

Page 75: Office of Surety Guarantees

50 46 1

References Ruck, Andrew J. and Bevan, John S., Guidelines for Evaluating Contract Bond Forms and Contract Documents, Philadelphia, PA: Duanes Morris and Heckscher, 1992. Clore, Duncan L., Bond Default Manual, Second Edition. Chicago, IL: Publications, Planning and Marketing, American Bar Association, 1995. Gallagher, Edward G., The Law of Suretyship, Chicago, IL: Publications, Planning and Marketing, American Bar Association, 1993. Remmen, Albert. The Contract Bond Book, Cincinnati, OH: The National Underwriter Co., 1977. Strain, Robert W. Insurance Words and Their Meanings, Indianapolis, IN: Rough Notes Co., 1981. Gleene, Mark R. and Trieschmann, James S., Risk and Insurance, Fifth Edition. Cincinnati, OH:

lack, Henry C., Black�s Law Dictionary

South-Western Publishing Co., 1981. B , Fifth Edition. St. Paul, MN: West Publishing Co.,

lark, Donald T. and Gottfried, Bert A., University Dictionary of Business and Finance

1979. C , New York, NY: Thomas Y.Crowell Publishers, 1957.

Effective Date: January 15, 1999 Page 74

Page 76: Office of Surety Guarantees

50 46 1

Effective Date: January 15, 1999 Page 75


Recommended